Far East Global raises $55 million from Hong Kong IPO

The deal is sold mostly to Hong Kong and mainland Chinese investors as IPO buyers become cautious about new issues. A cornerstone investor helps to attract sufficient demand to the offering.

Far East Global Group, a building facade specialist, raised $55 million from its Hong Kong initial public offering (IPO) after fixing the price at the bottom of an indicated range. The price suggests that economic uncertainties and volatile markets have made investors cautious and selective with regard to new issues.

Far East Global sold 361 million shares at HK$1.18 apiece, which translated into a 2010 price-to-earnings ratio of 8.5 times.

Investors were concerned about growing material costs which might affect the company's profit outlook, and about how the company can differentiate itself from its competitors, sources said. But the cornerstone investor, which is an industry heavyweight, helped attract orders.

Subscriptions came mainly from China and Hong Kong investors, who accounted for 85% of the total order book, while Europe and the Middle East accounted for 10% and 5% respectively, the sources said. The 10% retail tranche was said to have been 2.35 times covered, which means there was no clawback (that would have required a retail subscription ratio of 15 times).

Cornerstone investor China Overseas Insurance (COIL) bought about $20 million worth of shares. The company is a wholly owned subsidiary of China State Construction International Holdings (CSCIHL), which in turn is majority-owned by state-owned China State Construction Engineering Corporation, the largest construction enterprise and largest international contractor in China.

China State Construction's engagement in housing construction, international building contracting, property development and investment, and infrastructure construction offer good business opportunities for Far East Global, which provides facade materials for buildings, including curtain walls, glass walls and shop fronts, window walls, skylights and sunshades.

There is no other Hong Kong-listed company which has a similar business to Far East Global. However Italian company Permasteelisa, which is active in the same industry, was valued at around 10.6 times before it was de-listed following a takeover.

Far East Global's P/E of 8.5 times appears to be at a discount compared to the Italian company. However Permasteelisa is about eight times bigger than Far East Global by market value, sources said.

Far East Global was offering its shares at a price between HK$1.18 and HK$1.69 and was hoping to raise as much as $78.6 million. At the final price, the deal can increase to $63 million if the 15% greenshoe option is also fully exercised. BOC International was the sole global coordinator of the share sale. The company will start trading on March 30.

Meanwhile, a source familiar with the situation said yesterday that Man Wah, a Hong Kong-based sofa maker and retailer that was seeking up to $438 million from a Hong Kong IPO that closed yesterday, may be re-launching its share sale with a reduced price range and valuation as investors thought the offering was too expensive and showed little interest in the deal.

"The company de-listed from Singapore not long ago, and it comes to Hong Kong with a valuation that's twice as much as its valuation was in Singapore," he said. "Singapore is a weaker market than Hong Kong."

However, a separate source close to Man Wah said the company will be pricing the deal today. The company de-listed from the Singapore Exchange in September 2009 --- four years after its listing in the city. It offered 289.3 million shares, or 30% of its enlarged share capital, at a price between HK$8.5 and HK$11.8. Macquarie is the sole bookrunner.

The price range equalled a price-to-earnings ratio of 10.1 to 14 times, based on 2010 forecast earnings, with the lower end indicating a premium versus Hong Kong-listed Samson Holdings, which trades at a P/E multiple of about eight times. Samson produces and sells wholesale furniture to the US and has a similar business as Man Wah.

"Although we are bullish on Man Wah's China business growth (which is) driven by retail network expansion, we are neutral on its rich IPO valuation. Its overseas markets channel reform was successful but growth visibility beyond 2011 is low," Cinda International said in a research note.

Also set to price imminently is Fook Woo Group, a Chinese recycled paper company, whose $183 million Hong Kong IPO closed yesterday. Royal Bank of Scotland and UBS are arranging that deal. 

¬ Haymarket Media Limited. All rights reserved.
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